Power costs are stable. Gas prices decreased markedly in 2014 Oil futures are low compared to 2013 and earlier. . Production is constant. Low energy likely is fueling an economic expansion. Gas economy in vehicles is at an all-time high. Fuel efficiency lowers GHGs and cuts oil imports. America is less reliant on foreign oil. We have more money in our pockets. Utility power costs and vehicle costs are lower. Generator operations are lower. Life is great. Or is it?

Well, that depends on who you talk to. Politicians in states with in oil and gas based economies are scrambling to deal with large deficits in their budgets. The railroads are not happy over the Keystone pipeline vote. Green energy manufacturer are unhappy. Environmentalists are unhappy. Heck even the Koch brothers are probably not completely happy

The first issue is methane gas. Pipelines and fracking operations lose about 6% of the gas. A Washington Post article estimates 8 million metric tons of methane is lost each year. That is where we are trying to capture and transport it. The Bakken fields lack pipelines for gas, so much if it may be flared. The amount of fracking will continue (Florida Power and Light has said it will get into the business – but outside of Florida), so more exploration will likely lead to more methane escaping. Why do we care? Methane is 22 to 80 times the greenhouse gas that carbon dioxide it (depending on who you talk to). It accounts for 9% of GHG emission in the US – a third of that from the oil and gas industry. That gas is concentrated in the western US which makes them ripe for regulation.

Enter cap and trade. The cap and trade “industry” has been opposed by the oil and gas industry for years. However there are a number of groups –from Indian tribes to NextEra Energy are posed to benefit from cap and trade (C&T) rules. They have reduced their carbon footprint enough that they can sell carbon credits. It is doubtful that this Congress with pass C&T legislation, but much of the regulatory focus could be shifted if C&T was in place. C&T could accelerate green energy efforts.

Green energy folks want continued subsides or policies that encourage increased green power supplies, improve technology and reduce prices – all at the same time. Rolling out a major change in the energy picture is a huge investment that will not gain traction without policies to encourage it At least for now, green energy creates more jobs per KW-hr than conventional oil and gas, primarily in research and development and product manufacturing. Sewing up the patents would portend positively for America in the 21st century, much as sewing up the car, gas engine, and nuclear patents did for the 20th century. He who owns the technology should benefit. Unfortunately that isn’t the Koch brothers who are unhappy with green energy but are happy that lower oil prices might decrease the competition in the future when oil prices inevitably rise. But America would be better off in a non-oil based economy in 50 years if we developed an energy policy to address these issues with a long-term view.

However, that would take a lot of business and political leadership to overcome some of those who do not want change. These are people who have more money than the Concord coach makers who could not fight the technology change to automobiles in the early 20th century. It also takes a vision of what America should look like in 50 years. We might be short on those visionaries. And how will utilities be a part of it.

So what does this mean for water and sewer utilities. First, we’d love to stay out of the fray. Water and sewer utilities recognize that they are the “peak” power supply for electric utilities. The means to expand power supplies is made difficult by the rules for capital recovery for power utilities that penalizes peak and redundant power supply construction. It must be used and useful to qualify for a return. Hence NextEra builds inexpensive, small increment renewable wind systems to be made whole and encourages residents to reduce demands so they do not need to build more large scale capacity. That works as long as access to renewables or increases in efficiency are available. The use of federal subsidies encourages the used of new technology but without the subsidies, expect the construction to slow.

The European Union is looking to phase out renewable power subsidies by 2017, which may have fairly significant consequences for the European renewable market. The Koch brothers and the Tea Party operatives they fund through many organizations like the Institute for Energy Research, Americans for Prosperity and the Heritage Foundation, are fighting federal tax credits for wind, while backing tax credits for oil and gas. Why do the Koch brothers keep showing up? Because as we noted in a prior blog – they stand to lose profits if the US depends less on oil and gas IT si a problem with big money interests using that money for self preservation as opposed to progression of technology and ideas.

Think what would have happened 100 years ago if big money was allowed to control progress. And I have just the perfect scenario pitting two sides of my family. My mother’s great uncle made Concord coaches. As long as horse drawn carriages and coaches were the primary transportation options, they made money. OF course many cities and towns found that they spend much of their tax money cleaning up after the horses, one of the all-time yuckiest jobs. Tons of horse poop was cleaned up nightly on the streets on many cities. Images are available on line. Of course there was also the stench, disease, vectors, etc associated with all that poop.

Then came Henry Ford. My Dad’s side of the family were Detroiters. They got jobs in the Ford factories, and made money from services to autoworkers as well. The cities loved having cars – less poop. In fact Henry’s cars worked so well, that very quickly cities didn’t have to pick up poop. And the stench and disease decreased. Of course back then, my mothers’ family did not have the same means to buy influence to prevent Henry Ford from producing cars. My uncle went broke, but America and my father’s family in Detroit, benefitted greatly as a result of the new technology. I think we all benefitted from the automobile. Thankfully the coachmakers didn’t have money.

Using politics and influence to resist new technology seems unAmerican. Using subsidies to encourage is seems far more beneficial to society as long as those subsidies actually benefit society. Subsidies have long been a means for governments to alter consumer and corporate behavior and encourage new technologies. Subsidies for recycling steel, aluminum, glass, paper and other materials remained in place until the technology was cost effective to compete with new materials. Now recovered steel is cheaper than new steel materials. The subsidies had their effect. The same is true with aluminum and glass. Subsidies in the form of grants encouraged water and sewer utilities to upgrade treatment and install pipes to serve new customers. Now those are low interest loans because most of the cost effective connections have been made. It benefitted society.

Subsides have been used for years in the US and Europe to encourage renewable power use. The result is a reduction in renewable costs as more people invested in the technology. Greater supply means lower costs (economy of scale, and, theory of economic supply and demand), and subsides are designed to reduce purchase prices sooner than the market might otherwise. Otherwise most of these industries never get off the ground because they cannot get to cost effective production levels. Stay tuned.

Back during the dark days of the late-1970s, when America was being held hostage by Middle East oil interests, the Department of Energy was created, ostensibly to free our economy from the dependence on foreign oil and all that trappings that go with it. It was a noble goal – the American economy could grow without the risks posed by foreign governments. Thirty five years later, could we finally be reaching that goal?

Interesting the often criticized billions of energy company subsidies of the Bush era do not appear to be responsible for solving the issue. Nor are the prior efforts to subsidize or otherwise encourage investments before. The energy subsides since 2000 do not appear to be the reason, but the arctic wilderness did not need to be disturbed either. The success had nothing to do with any of it, but instead a series of private risk takers to a gamble on an unproven technology, to make great strides – fracking.

Based on the success of the development of fracking for natural gas, we have made major improvements. But it is not just fracking, as many power plants are or have been rehabilitated to convert away from oil and coal to cleaner burning natural gas, thereby developing the market for natural gas. Local governments have been migrating their fleets to natural gas for years – natural gas can use the same engine with an $8000 conversion kit that allows automobiles to run on both. The conversions have made the demand for natural gas greater, making the investments needed to frack, more profitable. The US has significant reserves of natural gas, and fracking has made it easier to capture this resource. The benefit of natural gas is that the demand for oil is down, creating a glut of oil on the market and a decrease in price (at least for now).

But the question that has been left unanswered is what the domino effect of natural gas is. Certain advertisements will argue there is 200 years of natural gas available for the US so we don’t need to worry about energy. Others will argue that only 10-15% of that supply is actually recoverable (it should be noted that this assumes current methods), which is a far shorter horizon. But in either case, natural gas in the ground is not a renewable resource so the question must be asked – does the fracking boom interfere with investment in truly renewable resources?

Since 2000, Washington has invested heavily in renewable resources – wind, solar and to an extent waves. Some energy companies like NextEra have been investing heavily in wind and solar power (they are the biggest investors in renewable power in the US), so what of these truly renewable investments? Will the rush to frack turn resources away from truly renewables? Or will renewable continue to be a small fraction of energy demands for the near future? The question remains unanswered for now.

The bigger question for utilities is whether fracking will divert money away from plans for renewable efforts like digester gas capture, solar cells and wind power at reservoirs and the like that utilities are using to help reduce power purchases. Will it impact utility efforts to become self-sufficient energy consumers like East Bay MUD? You see the economy has few favorites. Government can create favorites, by subsidizing products that would otherwise be too expensive like PV panels. The benefit of subsides can be to reduce costs of emerging technologies that may never otherwise see widespread use. Subsidizing renewables fit this mode.

Utilities should be concerned that the rush to frack pulls money away from their plans for renewable power. As the feds look to reduce their contributions to water and wastewater infrastructure, public money to energy does not appear to be decreasing. And unlike publically owned water and sewer systems, private investment in energy is increasingly available as a result of the potential profits that can be made. The diversion of funds may decrease prospects for funding water and sewer utility options, especially if interest rates begin to rise. The Federal Reserve Bank’s concern about rising interest rates was manifested earlier this year when interest rate increased, housing sales decreased immediately.

Of course the issue of fracking goes beyond the potential to disrupt monies for renewable energy. There are questions about the practice of fracking include water quality impacts, causing earthquakes, land subsidence, etc., issue that have yet to be resolved. Keep an eye out for a risk assessment that AWWA and others will be involved with to look at these risks.

Local utilities are among the largest power users in their communities. This is why power companies make agreements with utilities at reduced cost if the utilities will install backup power supplies. The peak power generation capacity as well as backup capacity is at the local utilities and other large users. Power companies can delegate this capital cost to large users without the investment concerns. It works for both parties. In addition, power companies spend effort to be more efficient with current power supplies, because recovering the costs for new, large plants is difficult, and in ways, cost prohibitive. Hence small increment options are attractive, especially when they are within high demand areas (distributed power). The use of localized wind, solar and on-site energy options like biogas are cost effective investments if sites can be found. That is where the utilities come in. Many utilities have sites. Large water utilities may have large reservoirs and tank sites that might be conducive to wind or solar arrays. Wind potential exists where there are thermal gradients or topography like mountains. Plant sites with many buildings and impervious areas could also be candidates for solar arrays and mini-wind turbines. Wastewater plants are gold mines for digester gas that is usually of high enough quantity to drive turbines directly. So utilities offer potential to increase distributed power supplies, but many water/wastewater utilities lack the expertise to develop and maintain these new options, and the greatest benefit is really to power companies that may be willing to provide as much money in “rent” to the utilities as they can save. Power entities obviously have the expertise and embedded experience to run distributed options optimally. So why don’t we do this?

I would speculate several reasons. First, the water/wastewater utilities have not really considered the option, and if they do there is the fear of having other folks on secure treatment sites. That can be overcome. The power entities have not really looked at this either. The focus in the power industry is to move from oil-based fuels to natural gas to accumulate carbon credit futures, the potential for lower operating costs and better efficiency of current facilities to reduce the need for capital investments. Power entities operate in a tight margin just like water/wastewater utilities do so saving where you can is a benefit. There are limited dollars to invest on both sectors and political and/or public service commission issues to overcome to invest in distributed power options at water/wastewater facilities.

But a longer-term view is needed. While fossil fuels have worked for us for the last 100 years, the supply is finite. We are finding that all that fracking might not give us 200 years, but more like 20-40 years of fuel. We have not solved the vehicle fuel issue and fossil fuels appear to be the best solution for vehicles for the foreseeable future which means they will compete directly with power demands. Natural gas can be used for vehicles fairly easily as evidenced by the many transit and local government fleets that have already converted to CNG.

The long-term future demands a more sustainable green power solution. We can get to full renewable power in the next 100 years, but the low hanging fruit need to be implemented early on so that the optimization of the equipment and figuring out the variables that impact efficiency can be better understood than they are now. For example, Leadville, CO has a solar array, but the foot of snow that was on it last September didn’t allow it to work very well. And solar arrays do use water to clean the panels. Dirty panels are nowhere near as efficient as clean ones. We need to understand these variables.

Area that are self sufficient with respect to power will benefit as the 21st century moves forward. There are opportunities that have largely been ignored with respect to renewable power at water and wastewater facilities, and with wastewater plants there is a renewable fuel that is created constantly. Wastewater plants are also perfect places to receive sludge, grease, septage, etc which increase the gas productions. There are examples of this concept at work, but so far the effort is generally led by the wastewater utilities. An example is East Bay Municipal Utility District (Oakland, CA) which produces 120% of its power needs at its wastewater plant, so sells the excess power back to the power company. There are many large wastewater plants that use digester gas to create power on-site to heat digesters or operate equipment. Others burn sludge in on-site incinerators to produce power. But so far the utilities are only reducing their cost as opposed to increasing total renewable power supplies. A project is needed to understand the dynamics further. If you are interested, email me as I have several parties wishing to participate in such a venture.

In June, President Obama made a speech about the increase in renewable power that the United States had created in the last 4 years, and announced goals to double this amount in the next four. Virtually all of this power was solar and wind power. Little mention was made of hydroelectric or onsite sources. But the latter have been around much longer than the former sources and there may be options to increase their contributions under the right circumstances.

Hydroelectric power has been in use in the US for over 100 years. By the 1930s, 40 percent of the nation’s power came from hydroelectric dams, including some fantastic accomplishments of the time like the Hoover Dam. Today we have over 100,000 dams in the US, most of which provide power. Today hydroelectric is only 6 percent of our total. The reluctance to continue with hydroelectric power involved fisheries, land acquisition costs and legal issues. Some hydropower options are excellent. Hurting fisheries (which disrupt local economies dependent on those fisheries) may not be, and therein lies part of the dilemma.

But water and wastewater utilities are actively looking for means to reduce power costs. Depending on the utility, pumping water can account for 80-90 percent of total power consumption, especially with high service pumps on water systems that require high pressures. More efficient pumps is one obvious answer, but of fairly limited use unless your pumps are really old. Variable speed drives can increase efficiency, and the cost is dropping. But note that with all that high pressure, how do utilities recapture the energy? We often don’t and the question is whether there is a means to do so that can benefit up. The first step is looking at plant hydraulics. Is there a way to recapture energy in the form a pressure. For example of reverse osmosis systems, we can install a turbine to recapture the pressure on the concentrate side. They are not very efficient at present, but the potential is there. On long gravity pipe runs for water supply, a means to recapture pressure might also be available.

Of course on-site generation of power is a potential solution. Water and sewer utilities have land, and on the wastewater side, methane, so producing power is possible. This solution, however, may not be embraced by power utilities due to the potential revenue reduction potential and loss of embedded reserve capacity at water and wastewater plants. As the water facility takes on on-site generation, their load profile may shift significantly placing them in under a different rate structure. This may greatly reduce the benefit to the facility. There are, however, approaches to permit win-win solutions. The goal is to put willing power and water utilities together to permit local generation that will benefit both power and water utility systems to encourage public – private partnerships. A medium to large wastewater plant can generate at least a third of its power needs. Some even more if they take in grease, oils and other substances that should not be put into the sewer system. The potential there is significant. EBMUD has a plant that is a net seller of power. We should look for opportunities. But don’t forget, water utilities can create hydropower without impacting fish populations. We just need to seek out the right opportunities.